Global Tax Alert | 16 January 2014

Spain publishes new Argentina-Spain Tax Treaty

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On 14 January 2014, the Spanish Government published in the Spanish Official Gazette the new tax treaty entered into by Spain and Argentina (the Treaty). The Treaty will retroactively apply as from 1 January 2013.

The new Treaty replaces the treaty entered into by Spain and Argentina in 1992, which was unilaterally terminated by the Argentine tax authorities as from 1 January 2013.

Detailed discussion

The new Treaty provides for a number of changes in relation to the previous Treaty which are summarized below.

Elimination of exemption for Spanish shareholders from Argentinean Personal Asset Tax

The most salient feature of the Treaty is that it now eliminates the exemption from the Argentinean Personal Asset Tax (which is imposed at 0.5% rate to foreign shareholders on their participation in Argentine entities calculated at equity value as of 31 December of each year) for Spanish shareholders. The 1992 Treaty provided for this exemption under article 22 (taxation on capital).

An important issue for Spanish entities holding a participation in an Argentinean subsidiary is whether, under applicable Spanish and treaty law, the now due local Personal Asset Tax will be deductible from the Spanish parent Corporate Income Tax (CIT) taxable base, especially given that the asset tax may be sizeable.

Other changes

Other main changes introduced by the new Treaty are the following:

  • Reduction of the maximum withholding tax rate on interest from 12.5% in the 1992 treaty to 12% (although this rate had been actually reduced to 12% by the Most Favored Nation Clause included in the 1992 Treaty).
  • The Treaty now allows the State of source (Spain or Argentina) to tax gains derived from the alienation of shares or similar rights in a company (either resident in that State or not), the assets of which consist in more than 50% – either directly or indirectly - of immovable property situated in that State.

The taxation of such gains will not benefit from the limited rates included in paragraph 5 of Article 13 for gains arising from the alienation of shares or similar rights in a company resident in one Contracting State (10% rate when the direct participation in the company whose shares or similar rights are transferred is at least 25%, and 15% rate in the rest of the cases).

The Treaty also allows now the State of source (Spain or Argentina) to impose tax on gains derived from the alienation of shares or other similar rights, which directly or indirectly entitle the owner of such shares or rights to the enjoyment of immovable property situated in such State.

  • The Treaty includes modifications to Article 26 to provide for an enhanced Exchange of Information clause based on the latest OECD recommendations and international standards to promote the cooperation between the tax authorities of both States.
  • Elimination of the Most Favored Nation Clause, which established the automatic application of lower tax rates if Argentina agreed to lower withholding tax rates in other tax treaties subscribed with other OECD countries.

Memorandum of understanding – New anti-abuse clauses

A memorandum of understanding (MoU) has also been signed, including a limitation on benefits clause aimed at avoiding an abusive use of the Treaty. With this MoU, the parties have agreed to the following:

  • The Treaty will not be interpreted in a way that prevents a country from applying domestic law in relation to the prevention of tax evasion.
  • Treaty benefits will not be granted to persons who are not beneficial owners of the income arising from the other State or capital located in the other State.
  • The Treaty will not prevent the countries from applying domestic regulations in relation to “control foreign companies” or thin capitalization, or regulations that are established in this regard.
  • Articles 10 (dividends), 11 (interest), 12 (royalties) and 13 (capital gains) will not apply when the main purpose, or one of the main purposes, of any person related to the creation or transfer of shares, credits or rights that give rise to income is to obtain the benefit of the related Treaty articles.


The entry into force of the Treaty, with retroactive effects as from 1 January, 2013, puts an end to the period of time during which there was no treaty protection for cross-border transactions concluded between Spain and Argentina.

More particularly, Spanish individuals and companies that had made cross-border payments to Argentine tax residents – and vice versa - during 2013 are advised to review the opportunity, if any, to claim the refund of excess taxes paid or borne.

Spanish groups holding Argentine investments should also review the tax impact of the application of Argentine Personal Asset Tax (with special relevance to the deductibility of the same for Spanish CIT purposes) with effects as from 1 January 2013.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Abogados, Madrid
  • Alfonso Puyol
    +34 91 572 5010
  • José Luis Gonzalo
    +34 91 572 7334
Ernst & Young LLP, Spanish Tax Desk, New York
  • Cristina de la Haba
    +1 212 773 8692

EYG no. CM4107